What Actually Happens At The End Of 'Trading Places'?

It's been 30 years since Trading Places came out. And, to be honest, I never really understood what happened at the end of that movie. Sure, Louis Winthorpe (Dan Aykroyd) and Billy Ray Valentine (Eddie Murphy) get rich, and the Duke brothers lose all their money. But what actually happens? How does it work?

I recently talked to Tom Peronis, a guy who has spent years trading OJ options. He walked me through every step of Winthorpe and Valentine's plan.

1. Give The Duke Brothers Bad Information

The Duke brothers — two old, rich guys — have bribed someone to get an advance copy a government report on the orange crop. This will give them inside information on what's going to happen in the market for frozen, concentrated orange juice. But Winthorpe and Valentine find out what the Dukes are up to, and they manage to steal the crop report before the Duke brothers get it.

The report says the orange crop is strong. When the rest of the world learns this, the price of OJ will fall. So Winthorpe and Valentine create a fake crop report that they put into the hands of the Duke brothers. The fake crop report says the crop was bad. The Duke brothers see this, and believe the price of OJ will rise.

2. Drive Up The Price Of Orange Juice Futures

The setting, the floor of the commodities exchange. The Duke brothers have told their trader to buy orange juice futures, and to keep buying no matter how high the price goes.

The market opens, and the Duke brothers' trader starts buying. Everybody else sees this and thinks the Dukes know something. Suddenly, everybody's buying. The price goes up and up and up, and the Dukes keep buying.

3. Sell To The Suckers

Then comes the key line for the entire movie — a line that's almost unintelligible. Standing on the floor of the exchange, Winthorpe (Dan Aykroyd) yells out:

Sell 30 April at 142!

Here's what that means: He wants to promise to sell orange juice in April for $1.42 per pound. The "30" in his line means he wants to start by selling 30 contracts. (One contract = many, many pounds of OJ.) (Also, that "30" might be some other number. It's hard to understand what he's saying. But it doesn't really matter — they sell a lot of contracts.)

All the other traders think the price in April will be higher than $1.42. The traders mob Winthorpe and Valentine, agreeing to buy lots and lots of OJ from them at $1.42 a pound.

4. Wait For The Other Shoe To Drop

A minute later, everything on the trading floor goes quiet. Everybody looks at the TV. On the TV, the secretary of agriculture walks up to a podium and reads the orange crop report. The guy tells the world that the orange crop is fine.

5. Buy Low, Get Rich And Bankrupt Your Enemies

To the traders, this means that the price of OJ is not going to go through the roof. All those traders who, a minute ago, were buying all they could, now suddenly need to sell. So the price starts falling. When the price hits 29 cents a pound, Winthorpe and Valentine start agreeing to buy orange juice in April.

In other words, Winthorpe and Valentine have contracts allowing them to buy millions of pounds of orange juice in April for 29 cents a pound, and to sell it for $1.42 a pound. They sold high and bought low. They're rich. The Dukes made the opposite bet and went broke.

Bonus: The Eddie Murphy Rule

One interesting kicker to the story: Trading commodities on inside information obtained from the government wasn't actually illegal when the movie came out, but it's illegal now. It was banned in the 2010 finance-overhaul law, under a special provision often referred to as the Eddie Murphy Rule.

Note: This story was originally posted on July 12. It was updated on July 19 to add audio from the radio version.

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

MELISSA BLOCK, HOST:

This summer, one of the iconic screwball comedies of the 1980s, "Trading Places," turns 30. It's a caper starring Eddie Murphy and Dan Aykroyd. But Robert Smith, of NPR's Planet Money team, thinks there's something about the film that average viewers might not know. He says "Trading Places" is the most sophisticated treatment of the financial industry in American cinema.

ROBERT SMITH, BYLINE: To appreciate how sophisticated this comedy gets, let's go to the final few minutes of "Trading Places." Our heroes, Eddie Murphy and Dan Aykroyd, walk out onto a crowded commodities trading floor.

(SOUNDBITE OF MOVIE, "TRADING PLACES")

DAN AYKROYD: (as Louis Winthorpe III) Well, this is it, the last bastion of pure capitalism left on earth. Here in New York, they trade everything - gold, propane, cocoa and sugar and, of course, frozen concentrated orange juice.

SMITH: You know, when I first saw this film, I assumed that frozen orange juice trading was a made-up thing for the movie, but not according to Tom Peronis.

TOM PERONIS: I'm just coming back from the New York Mercantile Exchange, where I - you know - spent the last four hours buying and selling all orange juice options.

SMITH: Who better than an actual frozen OJ trader to rewatch this movie with because I got to be honest with you, the end of this comedy is so complicated that generations have gone by with no one understanding exactly what happened at the climactic scene at the end.

OK. We zoom in on a bunch of guys in ugly vests milling around a giant trading floor. Tom Peronis says yeah, that's accurate.

PERONIS: There's my old place of employment.

SMITH: That's the World Trade Center.

PERONIS: Yeah, and that's - I had an office in that building right there. That's where the exchange was.

SMITH: Everyone is staring up at the clock, waiting for exactly 9 a.m.

(SOUNDBITE OF MOVIE, "TRADING PLACES")

SMITH: And what they're doing, in all this chaos, is now they're buying and selling future contracts on the price of frozen orange juice. And you can think of these things as bets on what the price will be in the future. There are a couple of bad guys in the movie, Randolph and Mortimer Duke. They're brothers. They're betting the price will go up.

(SOUNDBITE OF MOVIE, "TRADING PLACES")

RALPH BELLAMY: (as Randolph Duke) We want you to buy as much OJ as you can, the instant trading starts.

DON AMECHE: (as Mortimer Duke) Just keep buying.

SMITH: The reason they're so sure is that they have an advance copy of a government crop report, a report that says there will be an orange shortage. What they don't know is that the report is fake. Eddie Murphy has pulled the old switcheroo on the crop report in a long, complicated scam involving a gorilla costume, a train and, of course, a funny accent.

UNIDENTIFIED ACTOR #2: (As character) They know something - I can feel it. Let's get in on it.

SMITH: Everyone is betting the same way, in this movie. The price goes up, $1.10 a pound, $1.20 a pound, which brings us to the most pivotal moment in the movie. Dan Aykroyd has been watching the chaos around him, and he finally speaks. No, no, he screams the immortal words...

(SOUNDBITE OF MOVIE, "TRADING PLACES")

AYKROYD: (as Louis Winthorpe III) Sell 30 April at 142.

SMITH: Wait, wait, wait. What? This is the most crucial line in the movie "Trading Places," and it is incomprehensible. So Tom Peronis decodes it for us.

PERONIS: Sell 30 April at 142.

SMITH: What's he doing?

PERONIS: He's selling 30 futures contracts, at a price of 142 per pound.

SMITH: You've heard the phrase "buy low and sell high." It turns out you can do it the other way, in commodities. You can sell high, and then turn around quickly and buy low. Dan Aykroyd, in the movie, has essentially locked in a bunch of people who have promised to give him $1.42 per pound for OJ in April. Now, he just needs to pick up some cheaper OJ before then.

Luckily, he knows the real crop report is about to come out.

(SOUNDBITE OF MOVIE, "TRADING PLACES")

MAURICE COPELAND: (As Secretary of Agriculture) Ladies and gentlemen, the orange crop estimates for the next year.

SMITH: OK, this is totally unrealistic. Never would the entire market stop just to hear the secretary of agriculture. But let's just go with this.

(SOUNDBITE OF MOVIE, "TRADING PLACES")

COPELAND: (as Secretary of Agriculture) The cold winter has apparently not affected the orange harvest.

SMITH: That sound is the sound of hundreds of people who just realized that they bet the wrong way. There are plenty of oranges. The price is dropping, and who's there to buy them up cheap? Our heroes. The key to understanding "Trading Places" is the price. Earlier, the boys locked in orange juice price at $1.42 a pound. At the end of the day, they were buying OJ at 29 cents a pound.

They pocketed the difference on millions of pounds. Tom says this is basically the way it works, with some liberties.

PERONIS: It is a epic move, probably a significantly bigger one-day move than the orange juice market has ever had in its entire history. A purely fictional move, but, you know, enough to enable these guys to retire handsomely.

SMITH: Tom says that in the OJ world, even 30 years after this movie came out, he still hears traders scream out lines from the film.

PERONIS: Sell, Mortimer; sell, Mortimer - you know?

SMITH: And the movie lives on in another way. In 2010, the Dodd-Frank regulations made it illegal to use illicitly obtained government reports to make a profit in the commodities business. They called it the Eddie Murphy rule.